CBSE Class 11 Business Studies Chapter 7: Formation of a Company NCERT Solutions

Reviewed by · Updated on

NCERT Solutions PDF Class 11 PDF

This chapter delves into the crucial initial stages of forming a company, a fundamental concept in Business Studies for Class 11. The NCERT Solutions provide clear explanations and answers to key questions regarding the legal and procedural aspects of company formation. Students will learn about the minimum membership requirements for private and public companies, the process of name approval, criteria for an undesirable company name, and the purpose and issuance of a prospectus. These solutions are designed to clarify complex legal terminology and procedures, ensuring students grasp the foundational elements of corporate establishment. By working through these solutions, students can effectively revise the chapter's core concepts, preparing them for examinations with a solid understanding of how a company is legally brought into existence.

Home

Quick info

BoardCBSE
ClassClass 11
SubjectBusiness Studies
Session2026
LanguageEnglish
TypeNCERT Solutions
ChapterChapter 7

Chapter summary

Chapter 7, 'Formation of a Company,' focuses on the preliminary steps involved in establishing a business as a company. The NCERT Solutions cover essential topics such as the minimum number of members required for private and public companies, the procedure for obtaining approval for a company's name, and the conditions under which a proposed name might be deemed undesirable. It also explains the concept and role of a prospectus in inviting public investment. These solutions aim to provide clarity on the legal framework governing company formation.

Learning outcomes

  • Understand the minimum membership requirements for private and public companies.
  • Learn the process of applying for and obtaining approval for a company's name.
  • Identify reasons why a proposed company name might be considered undesirable.
  • Define a prospectus and understand its significance in inviting public investment.
  • Grasp the initial legal steps in the formation of a company.

Topics covered

Paper topics

  • Company Formation
  • Private Company Requirements
  • Public Company Requirements
  • Memorandum of Association
  • Company Name Approval
  • Undesirable Company Names
  • Prospectus
  • Invitation to Public
  • Securities
  • Deposits

Important topics

  • Minimum members for private and public companies
  • Process of company name approval
  • Criteria for undesirable company names
  • Definition and purpose of a prospectus

PDF preview

Read page by page below. PDF is streamed from the official NCERT website — no download button on this page.

Loading document …
Page of
Loading page …

Questions and Solutions

Question 1

1. What is the minimum number of members required to form a private company?

Options: 2, 5, 7, 3

Solution: The minimum number of members required to form a private company is 2. According to company law, the Memorandum of Association (MOA) for a private company must be signed by at least two individuals, signifying their intent to form the company and become its initial members.

Question 2

2. What is the minimum number of members required to form a public company?

Options: 5, 7, 12, 21

Solution: The minimum number of members required to form a public company is 7. Similar to a private company, the Memorandum of Association for a public company must be signed by at least seven persons, who will be the initial subscribers and members.

Question 3

3. To whom should an application for the approval of the name of a company be made?

Options: SEBI, Registrar of Companies, Government of India, Government of the State in which the Company is to be registered

Solution: An application for the approval of a company's proposed name is to be made to the Registrar of Companies (ROC). The promoters must select a suitable name and submit an application to the ROC of the state where the company's registered office is intended to be situated, for its approval before incorporation.

Question 4

4. Under what circumstances is a proposed name of a company considered undesirable?

Options: It is identical with the name of an existing company, It closely resembles the name of an existing company, It is an emblem of the Government of India, United Nations etc., In case of any of the above

Solution: A proposed company name is considered undesirable under several conditions. These include:
  1. If the name is identical to, or too closely resembles, the name of an existing company.
  2. If the name is misleading, suggesting the company is involved in a particular business or is of a certain type when it is not true.
  3. If the name violates the provisions of 'The Emblem and Names (Prevention of Improper Use) Act, 1950'.
Therefore, if any of these conditions are met, the name would be deemed undesirable.

Question 5

5. A prospectus is typically issued by which entity?

Options: A private company, A public company seeking investment from the public, A public enterprise, A public company

Solution: A prospectus is issued by a public company that is seeking investment from the public. A prospectus is defined as any document that serves as an invitation to the public to subscribe for the securities (such as shares or debentures) of the company or to make deposits in the company.

Common mistakes

  • Confusing the minimum number of members for private vs. public companies.
  • Not understanding the specific criteria that make a company name undesirable.
  • Misinterpreting the purpose and audience of a prospectus.

Revision tips

  • Memorize the exact minimum number of members for both private and public companies.
  • Create a checklist of reasons why a company name can be rejected.
  • Clearly differentiate between a private company's invitation and a public company's prospectus.
  • Review the steps involved in name reservation and approval.

Practice MCQs

Q1. What is the minimum number of members required to form a private company?

Q2. How many members are minimally required to form a public company?

Q3. To whom should an application for the approval of a company's proposed name be submitted?

Q4. Which of the following scenarios would make a proposed company name considered undesirable?

Q5. A prospectus is typically issued by which type of company?

Frequently asked questions

What is the minimum number of people needed to start a private company?

A minimum of two people are required to sign the Memorandum of Association for forming a private company.

What is the minimum member requirement for a public company?

A public company needs at least seven members, indicated by the signatures on its Memorandum of Association.

Who approves the name of a new company?

The Registrar of Companies (ROC) is responsible for approving the proposed name of a company.

When is a company name considered undesirable?

A name is undesirable if it's identical or too similar to an existing company, misleading, or violates the 'Emblem and Names (Prevention of Improper Use) Act'.

What is a prospectus in the context of company formation?

A prospectus is a legal document issued by a public company to invite the public to subscribe to its shares or debentures, or to make deposits.

How do these solutions help in preparing for exams?

These solutions provide clear, rewritten answers to key questions on company formation, helping students understand concepts, remember details like minimum member numbers, and revise effectively.

Important links

Content reviewed by the NCERT Help team. Editorial Team and update policy

NCERT Solutions PDF PDF on NCERT Help. URL unchanged for search indexing.